Another U.S. Senator Raises Doubts About For-Profit Higher Education

By Kelly Field

Washington

Sen. Richard J. Durbin, a Democrat of Illinois, joined a growing chorus of federal lawmakers voicing concerns about the growth and cost of for-profit colleges in a speech on Wednesday that called for limits on the amount of federal student aid that may be spent on marketing and a review of a rule that allows for-profits to receive up to 90 percent of their revenue from federal aid.

Mr. Durbin also proposed a ban on companies that acquire accreditation through the purchase of nonprofit colleges, and suggested greater scrutiny of loans that for-profit colleges make to their students.

His remarks, in a speech at the National Press Club, came a week after the Senate education committee held a hearing in which lawmakers vowed to crack down on "bad actors" in the rapidly growing for-profit sector to protect federal student-aid dollars from fraud and abuse. That hearing featured testimony from a Wall Street investor, Steven Eisman, who likened for-profit higher education to the real-estate market before its collapse, with easy credit driving prices ever higher and large defaults looming.

In his speech, Mr. Durbin cited Mr. Eisman's testimony and echoed its warnings.

"There is growing concern that we could be looking at a repeat of the subprime-mortgage fiasco, with low-income, high-risk students mortgaging their futures—not on overpriced homes this time, but worthless diplomas," he said.

Mr. Durbin promised to work on legislation taking aim at for-profits with Sen. Tom Harkin of Iowa, chairman of the education committee.

Comments

1.a_voice - June 30, 2010 at 04:50 pm

I think that this interest in higher education and how it works should be directed at all "bad actors", instead of singling out for-profit colleges. Is it ok to be a "bad actor" non-profit? Is anybody even looking into those as well?

2.haohtt - June 30, 2010 at 05:16 pm

As usual, Senator Durbin is jumping on the latest bandwagon, criticizing any institution that operates in the black. How hypocritical of Congress, who so mismanage our tax dollars and cannot figure out a simple profit/loss sheet, to offer a critique of how any business (educational or otherwise) operates. Although, as a_voice points out, all "bad actors" (including those in "non-profits") need to be ferreted out, Durbin would be good to heed the council to remove the beam (log) from his own eye before attending to the mote (speck) in another's eye.

3.11274135 - July 01, 2010 at 12:04 am

What is the incentive for a non-profit college to be a "bad actor"? Some struggling small non-profits occasionally engage in some questionable recruiting and program development activities in an effort to survive. But they usually get caught at it by accreditors, who keep a very close eye on schools with financial problems. And these schools are just trying to break even, since there is little reason for them to make more than they spend.

I have a darker view of all this. Because of the perpetual confusion between getting a college degree and getting a college education, education is a very rich arena for a "race to the bottom." Some students want the best education they can get (or they want the highest prestige degree they can get and recognize that that will entail some hard intellectual work). These students are pretty fussy about the academic quality of the institutions they seek out. Other students--and there are lots of these--just want a degree, any degree, as the "ticket in," and they are not too fussy about the quality of the degree or the requirements for learning. The less demanding the better. These are, more or less, ends of a continuum. So, the US News rankings take care of the needs of the first group. That's where the race to the top occurs, and there is no conceptual limit to the height. Instituions in this game are trying to figure out how to be the best they can be with the resources they have.

In for-profit institutions, academic quality is often determined by supply and demand. That is, the quality education they provide will be determined by finding the point where the product is good enough that enough people will buy it at a price sufficient to turn a profit for investors and owners. For pure degree seekers, that quality of education can be very low, and there are 'bad actors" happy to meet their demands. That's the race to the bottom. Unfortunately, while the advanced placement set is beating down the doors to Stanford, returning students, first generation students, students less successful in high school, and students less knowledgeable about higher ed culture tend to be among the degree seekers. They are very open to adverstisments that promote convenience and ease rather than academic challenge. Where you have large numbers of potential students who want a degree as quickly and easily as possible, you can be sure that there are people who are willing to provide them with that for a substantial amount of money.

4.gschuckman - July 01, 2010 at 06:43 am

The post by 11274135 begs the question of what value is a college degree (as opposed to a college education)? How do we -- or can we -- measure the 'value' of a degree? We know the averages that are often cited about the ROI for someone with an Associate or a Baccalaureate or a Graduate degree, etc., but you know what they say about averages. I don't know how to quantify this other than to do post-marketing studies that are akin to what the FDA conducts for pharmaceuticals that it approves, but clearly we are looking at how to differentiate the value of a degree, not only between a for-profit and a non-profit institution, but even by the type/major chosen by a student in their pursuit of a "ticket in." Doing so, of course, requires a much more robust data collection effort (ostensibly by the Department of Education but perhaps in conjunction with the Department of Labor) so that the federal government (or a student or parent or employer) can determine what is an appropriate ROI for their investment.

The beauty of our system of higher education today is its diversity and the freedom of choice that it affords students and employers alike. But like any sound business decision [and let's face it, all postsecondary institutions are businesses -- the difference being who benefits, stockholders or stakeholders (i.e.: policymakers, the academy, etc.)], the ROI is a fair measure for whether a student -- or a state -- should invest their time and hard-earned (and likely highly leveraged) funds in any institution and the postsecondary credentials that they confer.

I don't fault the policymakers for wanting to take a closer look at for-profit institutions -- the nature of 'collegiate learning' in particular seems to be one that is in the public interest and not for private gain. But as several have pointed out, there are many institutions -- too many -- that enroll students in programs that are not in the students' interests, but their own. It is a price that we as a nation can no longer afford, whether it be Title IV monies, crushing debt, or broken promises. Students, parents, employers, and taxpayers must have some protection -- especially for students who are considered 'underrepresented' in today's postsecondary marketplace -- from being exploited through clever (and often aggressive) marketing campaigns, whether they be for shareholders or stakeholders. If doing so requires an expansion of the existing federal regulatory process beyond accreditation that some (and likely all) institutions would find burdensome at best and invasive at most, then so be it. I would rather have full disclosure and transparency in postsecondary education than to have a product that is, in FDA terms, 'contraindicated' for general use.

5.rcappy - July 01, 2010 at 09:23 am

I have worked in the for profit higher ed space for forty years and the problem is much more complicated then attacking the gred aspect of the for-profits. A college education is pre-sold, even our president wants more people to get a college degree. We believe that without a degree, we can't be successful or enjoy the American Dream, however, we fail to address a fundamental problem. The vast majority of students graduatiing high school are not prepared for college. They lack the ability to handle college level academics and lack the discipline that is required to be successful. It's that simple. The for-profits are providing a rigouros academic experience to match up to traditional schools. It's the raw product that is defective. Our K-12 education system is a diaster and a national disgrace. We are turning out students that are not prepared for higher ed and not prepared for life.

6.cwinton - July 01, 2010 at 09:45 am

To quote a companion article regarding the Illinois School of Health Careers and its parent company, Forefront Education Inc., "For-profit education attracted some major private-equity players, including GTCR Golder Rauner, which invested in Forefront because of its high profit margin." Forefront is a company formed basically to use the federal student loan program to milk the gullible by offering "programs" promising something that was not delivered. The for-profits are deservedly taking a lot of heat because so many were formed for similar reasons. At least with diploma mills you could argue people seeking a short cut to a credential got what they deserved, but when a for-profit's motivation is to profit from the federal student loan program it is the US taxpayer that is ultimately being robbed. I think most of us find that kind of profit motive to be repulsive.

There are unquestionably non-profit bad actors, but let's take care of the most egregious first, which are those in the for-profit sector. The squalling to include non-profits under the same umbrella is a smoke screen being raised by for-profits hoping to dilute the kind of regulations that clearly are called for.

7.jmalmstrom - July 01, 2010 at 10:12 am

"I think that this interest in higher education and how it works should be directed at all "bad actors", instead of singling out for-profit colleges. Is it ok to be a "bad actor" non-profit? Is anybody even looking into those as well?"

Considering that for-profits account for the vast majority (over 60%) of bad student debt (meaning the students are not able to find a job that will allow them to comfortably pay off their debt), I can see no better "actor" to single out. Let the for profits have to face up to the accountability beast that the non-profits have faced for years.

8.medievalartprof - July 01, 2010 at 11:30 am

Why not forbid the use of federal grants or federal loans for enrolment in non-accredited institutions of higher education, or non-accredited professional programs within otherwise accredited institutions? Students would still be able to take out private loans to attend non-accredited institutions/professional programs, but their inability to access federal funds would be a red flag--particularly if the non-accredited institutions/programs were required to state on their promotional brochures, websites, TV/radio ads, etc. "Not eligible for federal grants or loans."

9.22097984 - July 01, 2010 at 03:30 pm

#8 and #5You offer only a partial solution. The issue is that even the accredited programs have high default rates. Basically, the for-profit models don't work with quality control. So, they recruit the students mentioned by #5 above. I reject the claim that nearly all of the high school graduates are this bad. Our problem is that as we move down the quality level, we are allowing in less and less prepared students.

My school, (small college in Iowa) has started a for profit unit within the not for profit college. There is absolutely no quality control which will haunt us come accredidation time. But, heck, we are making a buck now!

10.intered - July 02, 2010 at 12:12 pm

gschuckman,

Thanks for moving this discussion in the direction of evidence.

We do have one kind of data along the lines that you discuss. Since 1995, we have conducted in-depth conversations with employers across the nation. We are now averaging about 1,500 such conversations each year. We do this for clients (colleges) who want to see how well they are doing or if a particular profession sees a need for a new degree program that they might want to offer. The conversations focus on how well local education providers are meeting employers' needs for skilled employees, generally or with respect to specific professions.

As you can imagine, 15 years worth of data (>12,000 interviews) of this quality (the most detailed and reliable we have found) produced vastly more objective generalizations than anything the Department of Education possesses. They tend to rest their judgments on their own experiences at elite schools or on a few trusted advisors.

While the specifics represent many different programs in markets across the United States, I can provide a few generalizations that have been strong and stable over 15 years:

- Most employers for most professions and employment roles attach far less importance to the provider school than those of us in higher education think they do. More often that not, employers are unaware of the schools from which their employees graduate. When they do know, generally they don't care. This includes for-profits.

- A few employers do care and their preferences run in different directions.

+ Some (not all) employers of engineers, analysts (MBA level), and a few other specialized professions tend to have favorite schools or even preferred providers with which they have established relations. Very few of these are for-profits. Similarly, they have identified schools that they do not like but there is no pattern here. Upon questioning, employers' reasons for liking or disliking specific schools are not always clear and are not always objective. Sometimes it rests on where the CEO or other influential person graduated.

+ Some (again, not all) employers of allied health care personnel show a slight preference for hiring graduates of for-profits. In this case, their reasons are clear. The find these graduates better prepared to go to work as opposed to do research which is what they feel the public institutions overemphasize. Again, these preferences are slight. Most often, there is no preference.

The "bottom line," if there is one, is that we in academia make a big deal out of something that employers don't care much about. Thousands of employers have told us that the new hire's alma mater becomes irrelevant after the first paycheck. From that point on, its the employee's performance that counts and, on that point, they don's see a pattern that would support higher education's biases.

- Robert W Tucker

11.higher_ed_advocate - July 08, 2010 at 08:17 pm

Mr. Tucker,

Thank you for your post. Have any of your findings been published in the Chronicle or elsewhere? I would be interested to learn more about your research. Thank you.

Greg SchuckmanMember, Education Commission of the StatesSouthern Region Chair, Association of Community College TrusteesAssistant Vice President, University of Central Florida

12.dawesm - July 15, 2010 at 04:41 pm

Gee, it's been a week and still no supportive data from gschuckman. ... Tucker, Bueller, Anyone? Thank you Mr. Schuckman for shutting down rhetoric from the for-profit education machine. It's an indisputable fact that for-profits make the majority of their profits from government money lent to their students. Anything stated beyond that indisputable fact is rhetorical rubbish used to distort and confuse the obvious issue taxpayers have with for-profits.